- Mintlayer is a Layer-2 sidechain for Bitcoin, offering faster and cheaper transactions, advanced smart contracts, and easy transitions between UTXO and account-based systems.
- It’s versatile, finding use in DeFi, DEXs, stablecoins, tokenization, etc.
- TVL on Mintlayer surged from $100 million in January 2023 to $10 billion in September 2023.
Today’s top cryptocurrency faces scalability and speed challenges due to its proof-of-work consensus and block size limits. These constraints hinder its growth as a payment system and host complex smart contract apps. Layer 2 solutions, such as sidechains, are stepping in.
Mintlayer is a promising layer 2 sidechain project aiming to enhance Bitcoin with smart contracts, speedy transactions, and scalability.
We will unpack what Mintlayer is, how it works as a sidechain to Bitcoin, and many more in this article.
What Are Sidechains?
Sidechains are separate blockchains that run alongside the main blockchain, connected through a two-way peg. This peg locks up tokens on the main chain and releases equivalent tokens on the sidechain, allowing assets to move between them.
Sidechains enable blockchain experimentation without disrupting the main chain and aid scalability by reducing congestion on the main chain. Mintlayer is a sidechain designed for Bitcoin.
What Is Layer 2?
Layer 2 refers to a secondary system built on an existing blockchain, handling transactions and smart contracts off-chain to enhance scalability and efficiency.
Mintlayer conducts complex operations and smart contracts on the sidechain (Layer 2) while utilizing the security of the main Bitcoin blockchain (Layer 1), resulting in scalability and faster transactions.
What Is Mintlayer?
Mintlayer, created by Stacks, is an open-source Layer 2 sidechain for Bitcoin. It operates alongside the main Bitcoin blockchain through a two-way peg, allowing asset transfers between the chains.
This interoperability brings smart contracts, quick transactions, and higher throughput to Bitcoin in a decentralized manner, offering a promising solution for scalability and DeFi capabilities.
The Mechanisms of the Mintlayer
Mintlayer achieves interoperability with Bitcoin through key mechanisms:
Mint-and-Burn Process
Assets move between Bitcoin and Mintlayer through a process called mint-and-burn. BTC on Bitcoin can be locked to create equivalent BTC tokens on Mintlayer. These tokens are unlocked when needed on Bitcoin, allowing easy movement between both chains.
Proof-of-Stake
Mintlayer introduces a PoS Layer 2 protocol that enhances Bitcoin. It enables smart contracts, improving scalability and supporting DeFi, DEXes, stablecoins, and tokenization. Transactions are securely linked between Mintlayer and Bitcoin.
Smart Contracts
Mintlayer supports smart contracts using the Stacks protocol and Clarity language. This enables dApps like DeFi and NFTs on Bitcoin, utilizing Mintlayer for faster processing and complex functions.
How Does Mintlayer Operate?
Mintlayer operates as a blockchain connected to Bitcoin with a unique consensus mechanism called Dynamic Slot Allotment (DSA). This combines Bitcoin’s security with a PoS system that rewards validators and discourages bad behavior.
Network participation
Users must stake at least 0.01% of the total token supply (e.g., 40,000 ML tokens) to participate. They must also stake tokens for two rounds before participating, creating a three-week lockup period. Participants can renew their lock-in and hold multiple slots among the 1,008 available.
Mintlayer blocks reference Bitcoin blocks. In each Mintlayer round (around a week), participants are chosen using an algorithm based on Bitcoin block hashes. They create and validate blocks, collecting transaction fees.
To enhance Bitcoin’s security, Mintlayer has a checkpoint system to prevent long-range attacks and allow fast-sync nodes to download data from the latest checkpoint instead of the entire blockchain. Mintlayer participants can create checkpoints on Bitcoin using the OP_RETURN function.
Block proposers
Block proposers benefit from flexible block creation, with a 1 to 2-minute window for block approval. This design emphasizes sustainability and diversity, with a 1 MB block size limit to keep the blockchain’s yearly size below 525 GB.
What Sets Mintlayer Apart?
Mintlayer uses WebAssembly Virtual Machine (WASM) and Script Hash, a programming language, to create advanced yet reliable contracts. Users can switch between UTXO and account-based systems with programmable pools.
While Mintlayer’s smart contracts are Turing-incomplete, users can exchange tokens for Turing-complete ones for flexibility. It has an Access Control List (ACL) for transaction restrictions, offers reduced fees, and supports Lightning Network integration. Users can pay fees in various MLS-01 tokens.
Conclusion
Mintlayer is a groundbreaking layer 2 sidechain for Bitcoin. It enhances Bitcoin by adding smart contracts, improving scalability, and enabling decentralized finance, exchanges, stablecoins, and tokenization.
Its unique features, like Dynamic Slot Allotment, WebAssembly Virtual Machine, and Lightning Network integration, make it innovative while preserving Bitcoin’s security and decentralization.
